Introduction to Operations Management Table of Contents Section 1 Introduction Section 2 Defining Expectation Section 3 Design of a Product or Service Section 4 Inventory Section 5 The Process Section 6 Process Capability Section 7 Capacity Section 8 Setup, Shut Down & Shelf Life Section 9 Technology Created by: J PC Media LLC 11014 Oak Knoll Terrace N. Minnetonka, MN 55305 (952) 542-9872 www.jpcMediaLLC.com Rev. A (07/22/99) Copyright 1999 J PC Media LLC Contact J PC Media before reproducing this material Introduction to Operations Management What is Operations Management? Operations management is about the way organizations produce goods and services. Every book you borrow from the library, every treatment you receive at the hospital, every service you expect in a store, everything you wear, eat, sit on, use or read all have been produced by someone. The essential nature of Operations Management is concerned with organizing the process of getting things done. An operation is a transforming process converting a set of resources (INPUTS) into services and goods (OUTPUTS). The input resources may be raw materials, information, or even the customer themselves. These resources are transformed into the final goods or services by way of other transforming resources the facil- ities and staff of the operation. Inputs Examples of Types of Inputs: Customers At an airport, you are one of the many resources being processed. The operation in which you are involved is processing your ticket and baggage, moving from ticket desk through security check points, and onto your awaiting plane. The next time you stand on a moving walkway, imagine yourself as a part moving along a factory conveyor! Raw Materials Plastic pellets are melted and forced under pressure into a mold. The plastic is cooled and a finished part is ejected from the mold. Information A financial advisor gathers and provides information to clients, and assists in developing a financial plan. Information also includes feedback to control or improve the process. I n t r o d u c t i o n 1 The Transformation Process Process The steps needed to transform inputs into outputs. This can be a series of steps or this can operate as a deci- sion tree. Capital Equipment The tools needed to support the transformation process. Structures, machines, computer hardware, computer software and information. Labor The personnel needed to execute the transformational process. Outputs Output The output is the product and / or service required by the customer. (Customer is used in the broadest sense of the word.) A systems outputs can be inputs to another subsequent process. Steel panels are used to make car fenders. Car fenders are used to build a car. Outputs can be inputs to the same system. Quality control data to improve system operations. Complaints about a bland hamburger may result in the recipe being changed. 2 Introduction to Operations Management Overview of Operations Management Functions Operations Management involves a lot of different disciplines. To be effective, Operations interfaces with many different disciplines within an organization. The following diagram provides a few examples. Production and service operations have a central role in most firms (services and manufacturing). They typi- cally account for 70 - 80% of an organizations assets, expenditure and people. A major part of total revenue and capital investment expenditure is spent on production operations. Functions briefly defined SELECTING involves the determination of what product(s) or service(s) will be produced, and by what processes. DESIGNING involves the creation of methods of production. OPERATING involves the actual production processmeeting of schedules, satisfying of production quotas and standards. CONTROLLING involves testing for adequate performance with respect to quantity, quality, and timeliness and taking corrective action as necessary. UPDATING involves the revision of procedures within the organization, in response to stimuli from inside the organization or outside the organization. Operations Management Functions The operations manager is responsible for the success of the producing unit. This person needs a solid knowl- edge base (technology of products and processes) and human relations skills (decision-making, communica- tion, motivation.) Because of the complexity of operations management it is usually assigned to several departments or teams. The degree of cooperation may range from non-existent to highly integrated. The advantage of the highly integrated team is that it minimizes interdepartmental conflicts. PLANNING determine future course of action. Examples include layout, capacity, location, products and services. I n t r o d u c t i o n 3 ESTABLISHING ORGANIZATIONAL STANDARDS set goals and design; set schedules for projects; determine a means for accomplishment. STAFFING selection and training of personnel; the required skill level of personnel; choosing a larger workforce vs. choosing overtime, full-time vs. part-time. DIRECTING giving orders, motivating, formulating incentive plans, writing work orders, assigning jobs, measuring results, checking for acceptability, taking corrective action. CONTROLLING inventory management, quality assurance, process capability. ORGANIZING administrative structure; degree of centralization, make versus buy. Who, What, Where, When, How The organizing function entails, in addition to setting department structure, deciding how resources will be allocated. Allocation is to be as efficient (profitable, cheap, timely, etc.) as possible within given con- straints. This is clearly an area where compromise will be necessary. Who: manpower assignments What: product line decisions Where: facility location, product distribution, and sources of supply When: timing of inputs, outputs; hours of work; manpower schedules; inventory supply problems How: what technology to apply Thus the organizing function is far broader than mere structuring. The organizing function can involve sub- stantial use of quantitative techniques such as linear programming, forecasting, inventory modeling, etc. Comparing Production and Service Operations What is different about service operations? Most services have an element of product-based operations inte- grated with service delivery. A pure service operation does not exist. Methods which may be used to design, implement and evaluate product operations are relevant to service. Situations faced by service operations managers may be less significant and/or less frequently encountered by the production/manufacturing manager. The points at which comparisons can be made include: 4 Introduction to Operations Management Customer Presence and Participation. Production operations change materials into finished product. Then, after storage, transportation and stocking, the customer is supplied with the product. Unless the customer is consulted about the product specification and has the opportunity to inspect and give advice during production itself, production managers seldom meet customers. (The exception is the plant tour, when clients and other interested parties visit the production floor.) The public relations and customer care aspects of production operations are minimal. Operations have room to function without worrying about direct customer interaction and complaints. Such customer encounters are commonplace for service operations managers. Even the manager and staff of a computer services operation are constantly facing situations where customers complain directly and forcibly - not from a distance, but being present, while the staff is working. In a service organization, the customer is an active part of the process. In a charter bus or taxi, the customer talks to the staff and shares information and feelings. The staff responds to the customers detailed require- ments and handles their anxieties. The staff can also offer their own opinions. Using Customers as Labor In self-service situations, e.g. a modern supermarket, customers are extensions of the staff of the store. Supermarkets are even experimenting with scanning devices that have the customer process their own selec- tions and calculate shopping totals. The customer becomes the check-out person. The aim is to reduce the waiting time and the number of checkout staff, and to provide the customer more information. Remaining store staff carry out back-office functions and become advisers to customers, instead of automatons at the checkout. Self-service requires customers to be physically and mentally able to help themselves. They must lift, carry, process information and willingly engage in the service process. Information absorption, overload and under- load can be a problem and service systems must be designed according to the needs, abilities and preferences of differing customers the young, the old, the pregnant, the confused. If these conditions are not met then customers may perceive poor quality. Last night I spent five minutes and walked up the aisles of my local supermarket several times before I found the Parmesan cheese. It had been shelved with pasta products, not with the cheese! When using a self-service photocopier, a customer found the instructions for reduced, double-sided copying to be so complex that 16 sheets were wasted out of 24 that had to be paid for! The customer who cannot understand the instructions on how to assemble a bicycle or set up a computer sys- tem may be lacking in skill and knowledge, but if this results in dissatisfaction, this ill-feeling may be passed onto a wider public - their family and friends. I n t r o d u c t i o n 5 The automation and depersonalization of some services may have gone too far. Here we can distinguish between a premium service which gives direct staff support to customers and a DIY service which empha- sizes customer independence - the intangibles become apparent. Retaining existing customers is much cheaper that the costs of winning new customers. The loyal customer is an asset. Thus the significance of customer satisfaction is obvious. People hate changing their dentists, hair- dressers and local car mechanics. Personal confidence in the situation, familiarity, rapport and environment are often valued over more objective measures of operational performance. When the Product is an Experience Whether at Disneyland or when travelling on a train, the ambiance and responsiveness of the service are pro- duced and consumed as one. The depth of planning and preparation which enable the product to be con- sumed are hidden from the customers view. The customer sees and feels only the delivery phase of the prod- uct/service. Some customers may not mind waiting. Many will not wait and respond with varying degrees of irritation. If the customer knows of another service provider within easy reach, they may get up and seek other options. With the customer consuming the deliverables, we need to control service quality by design before it is actually delivered. This is why the quality-specification approach to service design is so attractive. In a facto- ry where a zero defects policy is applied, defects should not leave the factory. In services, a process-planning and a zero-defects approach to service design which is supported by a trained, loyal staff is essential to cus- tomer satisfaction. Difficulties in Stocking a Service Service capacity is wasted if not used. Service providers keep spare capacity to meet peak demands yet need to keep such costs to a minimum. Demand can be subject to rapid change which can be either short or medi- um term. An example: Short term variation is a computer help desk person who, on average, can advise and sort out the problems of 6 clients an hour. This person may have no calls between 15.00 and 16.00 a.m. followed by twelve clients from 16.00 to 18.00. The first ten were handled with an average of 5 minutes service time. The eleventh client needed over an hours attention, leaving the final client waiting and worrying about a solution to their problem. Medium term variations are often due to seasonal and cyclical patterns. Many are regular and predictable. Snow removal in the winter and lawn care in the summer are examples of a seasonal variation. Intangibles Intangibles in the service transaction mean that it is often difficult to specify and agree completely about the exact nature and dimensions of the service. Customers will vary as to their perception of what they want out of the service and what they are getting. 6 Introduction to Operations Management Do you like a sales clerk greeting you and offering help the moment you enter a shop or do you see this as pushy and an intrusion into your space? Do you mind waiting in line or even being asked to line up at the entrance to a restaurant while the waiter finds you a table? Would you ask a waiter to turn down the volume of music in a restaurant? Would you not give a tip because the waiter did little in serving your table? Most patients surveyed in a hospital outpatient clinic may feel it unacceptable to wait 20 minutes. Older patients, however, who visit regularly may enjoy the opportunity to chat and may be content to wait much longer. Our assessment of what is or is not acceptable may differ considerably. Understanding customer need is essential and in this regard good market research and mechanisms for customer feedback are important for service deliverers. I n t r o d u c t i o n 7 Defining Expectations Clearly establishing the outcome of a process is highly desirable but it is often overlooked. Benefits of Defining the Expectations for a Process Establishes a standard for decision making. Provides a mechanism for resolving interdepartmental conflicts. Allows for Thinking Outside the Box Useful in evaluating new technology Who is the Customer? A customer can be an individual or a group. A customer can be the next step in the process. (Providing Raw Materials) A process can have multiple customers with differing needs. Expectations Should Include Cost Time between demand and delivery Environment Level of service Level of customer support A description of the customers experience Quality of the product or service Determining What the Customer Wants Focus Groups Demographic data Customer History Industry Trends Customer Surveys Complaints / Feedback Degree of Customer Control Over the Operations Function The Operations Function is generally seen as isolated from the customer. In this context, output require- ments are passed from the customer to the operations manager to other departments in the organization. This concept implies that the customer has little contact with the actual production. For example, the purchas- er of an automobile may specify quite precisely which accessories are to be ordered. But they have no con- tact with the assembly line floorthe order is passed through the dealer, through the sales desk of the manu- facturer, to the factory floor. The customer has no control over the sequence of assembly steps, the timing of manufacture, the training of the employees. Defining Expectations 9 This model is not always true. Isolation of the customer is often less true for services than for goods. A rider of a city bus or other form of mass transit has no control over the route taken, the speed driven, or the place- ment of stops. However, a more customized service such as a taxicab may provide such features. Similarly, isolation exists for the traveler who flies a commercial airline, but does not exist when a chartered aircraft is used. When personal service is offered the customer is more involved. Customer reaction is more immediate and less predictable so such systems demand more sensitive, more personal control. The degree of customer con- tact influences system efficiency. Productivity is more difficult to measure and quality involves more subjec- tive assessment. 10 Introduction to Operations Management The Designer-Maker Interface A poorly designed product or service can fail to meet market needs and expectations. Often operations man- agers may be excluded from the actual design process. Their task may be confined to just make to specifica- tion and to cost. The interface between designers and makers/deliverers is the point at which conflict can occur. It can also be an opportunity to improve the manufacture of a product or the delivery of a service. It is important to note that the design and delivery process are closely linked. Its a nice design but can we build it or deliver the service at a profit? There is tension between the creative ideas of product designers and product makers. The conflict can occur if designers produce designs which are imposed on the product makers, i.e. you must do it this way. Producers are experienced with materials, equipment and people. They know what can be done. They com- prehend the problems associated with implementation problems and the limitations of current process tech- niques. There is a natural inclination to prefer tried and tested old ways instead of developing new, leading edge methods. Creative designs, new products or services, cannot be successful without including the problem-solving abili- ty of the producers. Designers must work together with the producers to achieve a successful introduction of a new product or service. Distinguish between these: Design - conceiving the product/service and drawing up the specifications Process design decisions- how to make the product or deliver the service How does this happen in your organization? Without analyzing producibility, a beautiful design may need to be modified for manufacturability. If design- ers regard their work with passion, they may object if the factory changes the color, shape, material, dimen- sions, taste etc. The factory may say that they cannot produce it as designed. This is one reason why a clear definition of outcomes is important to resolve this type of conflict. Often minor changes in a products design can dramatically improve its producibility. These changes are most effectively done as part of the design process. It is ideal if design engineering and manufacturability are parallel operations rather than sequential steps. This means designing the product and designing the imple- mentation processes are done simultaneously. Can we make it or must the design change to fit what we can do? If a parallel process is used these issues can be worked out on paper rather than as changes to a tested design or as changes in hard tooling. A design change at the final stage of product implementation is costly. The bulk of production set up costs have been incurred. Patch and make do may undermine quality and performance objectives. Design of a Product or Service 11 Service operations are not immune to problems associated in trying to make a service operation meet its objectives. In designing a service we must account for the nature of the customers participation in the ser- vice process. A badly designed service operation e.g. lines, waiting times, inefficient service points - will soon have customers complaining. Design accounts for the limitations and constraints of existing equipment, capacity, facilities and expertise. New products may be made alongside old products using existing technology. Product upgrades with new design features may have a significant effect on the operation. As an example: The introduction of a new salad line into the menu of a hamburger chain means that additional refrigeration equipment may be needed in each store which may not have the floor space, or the staff for replenishing the line. Design/Implementation Examples: Glued in Lens vs. Ultrasonic & O Ring Design - Glued in lens Glued in lens Design is easier It would appear that the manufacturing process is quite simple Set and capital equipment costs are low 12 Introduction to Operations Management Implementation Glued in Lens The process is difficult to replicate Variation in amount of adhesive from part to part and operator to operator The process is highly dependent on operator technique Maintaining the proper surface conditions is difficult to control It is difficult to verify that the process has been done correctly Design Ultrasonic and O-ring Design requires a more extensive mechanical analysis. The design must compress the o-ring correctly and the must be designed for a good ultrasonic weld. Capital equipment costs are higher. Design may be delayed while waiting for an ultrasonic welder. Design of a Product or Service 13 Implementation Ultrasonic and O-ring With fixturing the process is highly repeatable. Process parameters can easily be monitored and verified. Process quality can be verified easily. An Engineering Approach to Service Operations An important aspect of service design concentrates on utilization and efficiency in addressing demand vari- ability and customer participation. Service Design Issues The presence and involvement of the customer, the intangible elements of service and the variable demand for services are significant for the design of such operations. We can approach these matters by: - Engineering the procedures of service delivery and even automating the service. This approach stresses efficiency. We must understand the effects of depersonalization and reduced levels of contact with customers particularly if we move processing elements away from the point of contact with the customer to a back-office function. The introduction of automated teller machines by banks offers one illustration. Telesales services are another example. Design objectives should focus on meeting the customers expectations as well as utilization and efficiency to cope with demand variability. Customer participation makes demand variability more difficult to manage and unpredictable. Design may try to: 1.take the customer out of the process wherever possible and adopt industrial process design strategies for the processes not involving the customer. 2.if the customers presence is unavoidable, use the customer as labor. 14 Introduction to Operations Management 3.increase staff flexibility and balance capacity with demand. Various strategies are possible: Front shop/back room/office Using the customer as staff Staff flexibility Strategies to Address Demand Variability Front shop / Back room A design for a service operation may seek to minimize customer participation by assigning a front shop to handle the face-to-face elements. This is desirable if you need to control variations in how a service is per- formed. By removing the customer from the actual performance of a service you can effectively limit the number of service options. The actual service is removed to a back-room where conventional production principles reign. This allows for queuing of jobs to even out peaks in the demand for services. Compare the sale of mens suits today at a department store with a custom tailoring establishment. At a department store the customer is presented with ready to wear garments, made a month ago in a clothing fac- tory. He tries on the suits and chooses one, pant legs and sleeves are customized to the needs of the customer. Service content is minimal and impersonal (although a sales assistant may lend a hand). However the service design demonstrates high efficiency with delivery from stock. At a custom tailor, the customer can: discuss requirements with the tailor select the cloth and style be advised and measured go for a fitting and perhaps even talk with those who are sewing the garments. At the tailor, the transactions are high in service content. The staff is more skilled in garment technology and customer relations. The production system is a per order system with long and varied lead times. At the ready to wear garment factory, an emphasis on back-room design elements aids efficiencies with a loss of service content. The staff is less skilled. Design of a Product or Service 15